Japan sells off TW

Toshiba, Itoshu cash in with buyback plan

NEW YORK — Time Warner’s two Japanese partners, Toshiba and Itochu, have sold a portion of their stake in the entertainment giant for a total of $618 million, TW said Friday, taking advantage of the company’s high-flying stock price.

Toshiba and Itochu sold their stock to an affiliate of Citicorp, which will sell the stock to Time Warner within two years under its buyback program at a fixed price of $67.89.

While that price is well below Time Warner’s closing price Friday of $73.87, the deal was negotiated in February when the stock price was trading closer to $67. Time Warner disclosed the transaction Friday after it received final board approval.

“Today’s announcement underscores our optimism about the future performance of our company and our ongoing competitive strength. What this transaction will allow us to do is to effectively buy back our stock at $67.89 per share plus a financing charge,” Time Warner chairman Gerald Levin said in a statement.

The deal also saves Time Warner $26 million in dividends on preferred stock, Levin noted, as the common shares sold by the two Japanese companies were converted from preferred stock, which carries a high dividend rate.

Toshiba and Itochu still own preferred stock convertible into 22.1 million shares in Time Warner — about 3.8% of Time Warner’s outstanding stock — worth $1.6 billion at TW’s closing price Friday. That means the two companies have more than doubled the value of their original $1 billion investment, made in 1991.

The profit was a long time coming, however. The Japanese originally put up the money for 12.5% of the newly formed Time Warner Entertainment partnership, which owned Warner Bros., HBO and Time Warner Cable, but the partnership stake was converted to preferred stock in 1995.

The preferred stock could be converted into a total of 31.5 million common shares at any time, but at the time of the 1995 deal Time Warner stock was trading at $42, although it later fell back below $40. It was not until Time Warner completed its $7 billion acquisition of Turner Broadcasting System in late 1996 that the stock began a rally that still is going on.

Sources close to Time Warner said the deal was initiated by the two Japanese companies, who wanted to liquidate part of their holdings to meet their financial needs. Time Warner did not want the stock being dumped on the market however, so it arranged the buyback transaction.

TW has had a stock buyback program in place since 1996, designed to offset the impact of stock issued on exercise of stock options. The program was authorized to buy back as many as 35 million shares, although Time Warner said the board increased the maximum size by 9.1 million shares to allow this deal to be done.

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